AR & recession – Reconsidering analyst contract priorities

Controlling spending is a high priority for most vendors during a recession. For analyst relations (AR) teams this mandate causes angst because it means cutting spending with analyst firms, usually a big part of AR’s budget. Discussing this issue has become an increasingly common inquiry for SageCircle strategists as clients work through budget cutting scenarios. 

One of the main sources of anxiety is the perception that analysts will start bad mouthing the vendor to prospects, making negative comments in the press, and cutting off AR’s ability to brief the analysts. This is usually an overblown concern as reputable firms will not damage their standing with vendors – a significant source of information and market insights – over short term contract spending changes. Analysts at the largest firms often do not know the size of a vendor’s contract with the firm and will not notice if the vendor cuts the contract by some percentage.

Unfortunately, there will be individuals who do resort to threats and making overtly negative comments about vendors in the press as pressure tactics to get contracts. Typically these individuals are

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How much to spend on analyst contracts [AR practitioner question]

Inquiry: SageCircle received the following inquiry via e-mail: “Is our use/cost of the major analyst firms at about industry standard or better – especially as it relates to analyst contracts?”

“Are we spending the right amount on analyst contracts?” is a common question that SageCircle receives. This is one of a group of “standards” or “benchmarks” inquiries (see The Size of the AR Team [AR practitioner question]) that many AR managers wrestle with, often in response to their management’s demands for justification for budgets. While clients want us to provide a simple rule-of-thumb for analyst contracts (e.g., as a percentage of vendor revenue), we cannot provide it. Through our research, we have discovered that comparable vendors (in terms of markets, total revenues and number of employees) can have dramatically different analyst contract requirements.

The more important questions that need to be answered are: “Are the contracts providing us the services we need to reach our defined goals?  Are we managing the contracts to get full value? 

For end users clients, usually IT managers at large enterprises, the answers are much more clear cut. Even though enterprises use analysts for a variety of purposes (see Why technology buyers use the IT industry analysts), these purposes basically fall into either strategic and tactical decision support. Thus, spending can be focused on active topics and activities, especially where internal expertise is not available.

How much IT and telecommunications vendors spend on analyst contracts is dependent on a variety of factors. In this SageCircle blog post, we will focus on identifying the factors.

Breadth of usage – How many different functions in the company will analyst research and advice be supporting? The broader the usage, the more

Managing the AR budget in a recession

With all the turmoil in the economic scene, we have been getting inquiries about how to manage the analyst relations (AR) budget in a recession. This post is a roundup of content we have published on the SageCircle blog on the topics of budgets and spending. 

This content is the tip of the iceberg when it comes to the full set of intellectual property SageCircle has generated on these topics. There is more written research and SageTools^TM in the Online SageContent^TM Library. There is also an AR Team Briefing on managing budgets in a recession. Finally we recommend that Advisory clients, either Blocks of Advisory Hours or Annual Advisory, schedule inquiries to discuss the budget implications of the economic uncertainty.

• Notes on managing your budget in a recession – SageCircle’s Coffee Talk
• Budgeting cutting can help AR focus and innovate
• Budget cutting part two – Alternate solutions for analyst contracts
• Why it is a really bad idea to cut AR, even in a recession
   
• Analyst Relations budget – Use it, don’t lose it
• Christmas leftovers that are better than fruitcake
• Startups should look for “bite-sized” services that provide AR insights and tools at modest prices [Startup Saturday]

Purchasing Analyst Services, a six-part series:

1. Using five rights to avoid a wrong when it comes to purchasing Gartner or Forrester services
2. Right reasons – Evaluate why you are purchasing analyst services
3. Right services – Align the services you buy to better

Never assume during an annual renewal that the analyst service contract remains the same

Annual syndicated research subscriptions are a common approach for enterprises and vendors when it comes to gaining access to published research and advisory. However, for all the value and convenience in this type of contract, there is a potential “gotcha” to watch for during the contract renewal – changes in the terms and conditions.

Often contract renewals follow a simple path of adjusting the number of seats and add-on services based on past year’s usage, new requirements, and new offerings by the firm. Often the analyst firm sales representative will send along the new contract with a note that says “it is basically the same as last year, so please look at pages x and y to make sure we have captured the number of seats and services you need.  Then sign on page z.” If the client does not carefully go through the contract with a fine-tooth comb they might miss that the “basically the same” contract actually has some key changes to the terms and conditions that severely limit their use of the analyst services or gives the analyst firms the right to audit the client for contract compliance. 

In some cases, the firm sales rep does not know that the changes are there, they are simply using the new standard contract. In other cases, the sales rep is aware of the changes but does not

Right usage – Drive usage of the services you buy to ensure maximize business value [Purchasing Analyst Services, Part 6]

Part 6 of the Purchasing Analyst Services series does not directly address buying, but what happens after the contract has been signed. By taking into consideration how you are going to drive usage of the services you buy, enterprise and vendor buyers of analyst services can feed that back into the purchasing process to ensure that you will get the right services from the right firms at the right price and maximize business value from the contracts.

One of the key purchasing mistakes buyers make is not examining past contracts and determining if the services were adequately used. While some larger clients of the analysts will survey users on whether the firms under contract had responsive client service, timely access to analysts, and maybe ask a subjective question about usefulness, they rarely evaluate usage patterns to see if seat holders actually use the services at an optimal level to get business value. If usage by particular seat holders is low, buyers need to reconsider whether or not these seat holders should receive seats at contract renewal time. One of the best ways to save money is to not buy services that do not get used.

In addition to analyzing usage patterns, analyst clients need to evaluate their training programs and their processes used to encourage usage of

Right price – Acquire those services that meet your basic requirements [Purchasing Analyst Services, Part 5]

In the past the way to avoid the price increases that Forrester and Gartner are initiating on a regular basis would be to use the usual purchasing best practices. These include waiting until the last minute before the end of the quarter or better yet end of the fiscal year to finalize a contract, playing one firm off another, signing up for a multi-year contract, and consolidating purchases to obtain a larger discount.

Alas, these techniques are not as effective now with Forrester and Gartner as they were in the past.

While there are hundreds of analyst firms, with some large ones like AMR Research and IDC, the unfortunate reality is that when it comes to the market for end-user advisory analysts, Forrester and Gartner have achieved a de facto duopoly. Because the market for

Right services – Align the services you buy to better match the reason for info or advice [Purchasing Analyst Services, Part 3]

(Based on comment’s Forrester VP Eric Lobel and review of notes and Forrester quarterly earning call transcripts, we are changing this post to remove Forrester from the discussion that the move to role based research is a means to significantly raise the price of syndicated research. While Forrester executives do regularly talk about raising the average selling price of its services through reduction of discounts and annual price increases, there is no price difference between WholeView and RoleView.)

Forrester and Gartner has have a variety of services that they offer at different price points. One of the products that both firms are Gartner is pushing their its sales forces to sell more of is the role-based products (“RoleView” at Forrester and “Gartner for Business/IT Leaders” at Gartner). During its 1Q08 earnings conference call Forrester’s CEO even introduced a new metric, “roles per client,” for financial analysts to track. Gartner’s CEO updates financial analysts each quarter on the progress his firm has made in switching clients from traditional Core Research seats to the role-based seats.

Why the emphasis? Switching a client from Forrester WholeView or Gartner Core Research to one of the Gartner role-based seats is effectively a significant (up to 100%) price increase. The draw is for the additional “analysis” more suited to the person’s role.  While a role-based seat might offer sufficient incremental value to be worth the price difference for some buyers, that might not always be the case. 

It is important for buyers of analyst services, whether enterprises or vendors, to carefully examine all the deliverables associated with